Buffett: The Eurozone Is Flawed

Published in Investing on 21 November 2011

But he's still keen on Tesco.

One thing I like about Warren Buffett is that when I read his words, I often think "Yeah, that's obvious - why didn't I think of it?"

And in an interview with CNBC, in which Buffett has been voicing his thoughts on the eurozone, many will see more of the same.

Talking of the 17-member single currency group, the sage opined that "the system as presently designed has revealed a major flaw and that flaw won't be corrected just by words". If it does survive, which Buffett thinks is in doubt, European countries will need to come together more closely or come up with some sort of rearrangement. But as it stands the system is not working.

The ability to print money

The contrast with the USA, which has also suffered its share of the banking crisis after billions in mortgage-back securities were suddenly recognised as worthless, could hardly be greater. The USA means to get back on track, and to the envy of a large swathe of the eurozone, it has exactly the right tools to do it -- total control over its own currency and its own monetary policy. Eat your heart out Greece, Italy, Spain.

In fact, the big euro weakness that Buffett highlighted was that all 17 member states have voluntary given up their rights to issues bonds in their own currencies; to effectively print their own money. Buffett describes that ability as an enormous asset -- and an enormous liability if you don't have it.

But while Buffett says he has no idea how the eurozone crisis will end, he does see some investment bargains in European companies.

Bargains to be had

Telling us that Berkshire Hathaway will be making an investment in one large European company over the coming days, Buffett also reckons he'll buy more Tesco (LSE: TSCO) shares should they come down in price, after having already taken a significant stake in the UK's leading supermarket. And that's saying something, after Tesco shares have already greatly outstripped the FTSE this year. 

So what is he looking for in his investment search? Well, the same as for the past 60 years. He wants big companies with a sustainable competitive advantage, whose shares are fundamentally undervalued, and which are run well by honest people.

How does he sum it up? "Any time stocks go down I buy more of them. I like buying things on sale." Does all this, with the hindsight we now have, sound obvious to you? It's a shame it wasn't obvious to the leaders of the EU back in 1999.

By the way, if you want to find out just why Warren Buffett is so keen on Tesco, then you'll want to read this free Fool report.

More from Alan Oscroft:

> The Motley Fool owns shares in Tesco.

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BarrenFluffit 21 Nov 2011 , 12:24pm

Curiously Kouparitsas concluded that the USA was not an optimal currency area either. Taken logically it seems reasonably unlikely that the relatively arbritrary boundaries of nation states would result in one either.

Thus countries should auction the sovereignty of their regions to maximise GDP and form OCA's.

compound200 21 Nov 2011 , 1:37pm

ask him what he thinks of lloyds banking group?

k8r4u 21 Nov 2011 , 3:31pm

It certainly does seem f-f-f-f-f-f-flawed at the moment ...

jaizan 21 Nov 2011 , 6:52pm

"Buffett: The Eurozone Is Flawed
......But he's still keen on Tesco."

Makes sense, as most of Tescos earnings are from outside the Eurozone.

adcmelb 21 Nov 2011 , 9:20pm

No surprises there - the southern states are lazy liars bludging on the hard working competent northern states its only going to be a matter of time before the obvious happens its just the politicians that dont want to believe it.

vinchainsaw 21 Nov 2011 , 10:35pm

"Buffett: The Eurozone Is Flawed"

Wow, what insight.

vinchainsaw 21 Nov 2011 , 10:46pm

I'm not convinced that the printing press is the panacea to all the US woes. It is an enormous asset as Buffet points out, until it isnt.

I dont see how the US can maintain their reserve currency status if they go about devaluing their currency. What investor will hang onto an ever-diminishing asset?
And without reserve currency status things could very, very ugly in the US.What if oil, for example, was sold in something other than USD?Currency devaluation would cause petrol prices to rise dramatically in USD along with every good and service sold in the US.
Lets not forget the US, with oil-producing countries aside, have one of the lowest petrol prices in the world.

The printing press will work for a time but inevitably it will fail as there are very real structural problems in the US.

john10001 09 Dec 2011 , 8:37pm

I don't believe the Dollar will cease being a reserve currency, certainly not anytime soon anyway. There is no other currency apart from the Dollar that you could use or would be used instead. The next "stable" currencies would be the Yen and Pound. The Euro is a disaster and it's only a matter of time before the whole currency collapses. At the moment they are just delaying the inevitable.

The US need to devalue their currency so they can still be competitive and export goods and services. If they don't do it you're going to see more big companies like GE also packing their bags and shifting base, and they really don't want that to happen. There is a danger of hyperinflation if they print to much, don't make drastic cuts and get spending under control. I suspect that will start to happen after a change in Washington that is 13 months away.

Agree with Barren Fluffit that we need more currencies in the world not less. In fact it makes economical sense for London and the South East to have its own currency separate from the rest of the UK. Not so sure on the auctioning sovereignty of different regions though.

The US is a completely different case compared with the EU/Eurozone. The reason why one currency works in the US and not the Eurozone is because it is all one nation and one peoples, it is a decentralised system with the different states having the ability to set their own taxes, and laws and have greater control over what goes on within their borders. They also have a common language, freedom of movement, low taxes, limited government, are not weighed down by public healthcare that is as costly as in Britain and the EU. It would not be as easy for someone in one nation in Europe to move to find work in another if there is no common language, culture, interests or anything else as it would be for an American to switch from a state in one part of the nation to another. We have absolutely nothing in common with anyone in Europe.

Us British dislike the French who dislike the Spanish who dislike the Portuguese who dislike the Italians, who dislike the Czechs who dislike the Swiss who dislike the Austrians who dislike the Slovenians who dislike the Croats who dislike the Serbs who dislike the Bosnians who dislike the Macedonians who dislike the Greeks who dislike the Turks who dislike Cypriots who dislike the Germans who dislike the Poles who dislike the Germans who dislike the Dutch who dislike the Germans who dislike the English who dislike the Scottish who dislike the Northern Irish who dislike the Southern who dislike the English who dislike the Welsh who dislike the British who dislike the Germans who dislike the Danes who dislike the Swedes who dislike the Finns who dislike the Norwegians who dislike the Icelandics who dislike Luxemburgers, and the Belgians, well they are just disliked by everyone. And it goes on and on and on. Not all those are true but you get the point I am trying to make. We have absolutely nothing in common whatsoever other than the general geographic area where we live and that alone is not enough to suddenly decide to form a socialist political union because of some mad grandios political idea dreamed up by the furerland and France to become a superstate and rival the big bad USA. If history has taught us nothing in Europe over the last hundred years and two brutal world wars, it is that we should keep well apart. This EU/Euro disaster could cause another.

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